UKARINE CONFLICT: IMPORTANCE OF SWIFT SYSTEM AND EFFECT OF RUSSIA EJECTION ON RUSSIAN ECONOMY BY OYEYINKA IFEOLUWAPO GRACE
The European Union, US, UK and allies have agreed to exclude a number of Russian banks from SWIFT, a international payment system used by thousands of financial institution. This is a statement made by the Executive President of United States Joe Biden. Could this sanction on Russian banks led to the crash Russia economy?. This article will analyze the Effect and Importance of SWIFT on Russian economy.
A group of western nations (Germany,
France, UK, Italy, Canada etc.) imposed another set of sanctions perceived to
be stricter than those imposed earlier on the Russian’s central Bank and some
other banks on the country, to exclude them from the SWIFT messaging system.
The move is being seen as one which could potentially isolate Russia in
international market.
WHAT YOU NEED TO KNOW ABOUT SWIFT
SYSTEM.
SWIFT which stands from Society for
Worldwide Interbank Financial Telecommunication. It’s a messaging system that
ensures fast cross-border payments and has become backbone for financing global
trade. It’s founded in 1973, the system is a member-owned cooperative; overseen
by National Bank of Belgium and representatives from the U.S Federal Reserve,
the bank of England, and the European Central Banks among other major central
banks based in Belgium. According to reports, The system handled a message
traffic of 42 million per day last year. As of Today, more than half of all
high value cross-border payments networks use the SWIFT, with linkage to more
than 11,000 financial institutions in over 200 countries and territories. The
last time a country was cutoff from SWIFT was in 2012, back the it was IRAN
against whom the European union had approved sanctions. The country was later
reconnected to SWIFT after the sanctions were removed 2016[1].
THE EFFECT AND IMPORTANT OF SWIFT SANCTIONS ON RUSSIA
ECONOMY
SWIFT messaging system, as explained
above, is a critical part of international economic activity. They provide
extremely secure communications, developed over five decades dovetailing with
many and varied operations of commercial banks in international transactions
swift systems would be a prime target in any cyberspace[2].
Furthermore, the reality, however, is
that limiting access to SWIFT is less practically effective than most media
coverage. Its other measures, such as blocking the central banks of the
Russian federation and some other banks from transacting internationally which
can cause hike in the interest rate (Monetary policy). Since SWIFT according to
reports handles around 40 million payment messages each day. If we assume that
without such messaging system, each payment would take a bank clerk a few hours
to process, the saving might be about 100$ per transaction. This would mean
that SWIFT add value of around $4 billions per day or $ 1 trillion per year to
the global economy. None of this is to say that there will be no economic
impact in ejecting Russian Banks from SWIFT. However, without mincing of words,
it will affect lower value payments such those in small business supply chains
because SWIFT makes payments processing so cheap and easy. Also, it disable
Russian energy companies to get notified for payment for selling their oil or
gas globally without too much handle. It must be noted that SWIFT is not a
payment or settlement system in itself.[3]
COULD THERE BE AN ALTERNATIVE FOR
RUSSIAN ECONOMY?
In conclusion, Russian Banks might for example arrange SPFS payment system which was established after 2014 invasion of Crimea by the Russian central bank. This is currently used by a handful of international banks in Germany and Switzerland linked to Russian Banks. Or they could use CIPS network which was created by the People’s Bank of China for the purpose of cross-border payments in renminbi with indirect participants in many countries. This is not a mean of encouraging war crime.
OYEYINKA IFEOLUWAPO GRACE is a
300Level Law student of Ekiti state University, Ado Ekiti. A vivid writer and
reader. She has keen interest in Cooperate and Commercial Law, Arbitration and
Financial Banking.
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